That’s according to the International Energy Agency, which said in a new report Thursday that demand for energy could crash 6% this year if lockdowns persist for many months and the economic recovery is slow.
Such a scenario is “increasingly likely,” the IEA said, adding that a drop of that scale would be seven times the size of the decline following the 2008 global financial crisis. Demand for electricity is poised to plunge 5% in 2020, the largest fall since the Great Depression.
“This is a historic shock to the entire energy world,” Fatih Birol, executive director of the Paris-based agency, said in a statement. “It is still too early to determine the longer term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before.”
Demand for coal, oil and gas has been slammed as a result of shutdowns aimed at containing the spread of the virus, which have put the brakes on economic activity and brought international air travel almost to a standstill. Oil demand in particular could drop 9%, erasing eight years of growth.
Only renewable energy has held up, with demand for electricity generated from sources such as solar and wind set to rise by 1% in 2020. Low operating costs have provided a boost.
These dynamics — combined with the supply glut that resulted from a brief but brutal price war between Saudi Arabia and Russia — have rocked the oil market. Last week, US oil prices turned negative for the first time ever. That meant traders were effectively paying people to take crude off their hands.
Oil prices have since recovered but remain near their lowest levels in decades. This is expected to trigger a wave of bankruptcies and job losses in the industry as production slows down to meet the drop in demand.
The decline in energy use is led by developed economies, according to the IEA. The agency forecasts that demand will drop by 9% in the United States and 11% in the European Union.
Some countries in Europe and parts of the United States are starting to lift strict lockdown measures in a bid to gradually restart their economies. The pace at which those limits are eased will have a major effect on energy use; the IEA estimates that each month of global lockdown reduces annual demand for electricity by about 1.5%.
In the meantime, carbon emissions are dramatically lower. Carbon dioxide emissions tied to energy use are set to drop by almost 8% in 2020 to their lowest level since 2010, according to the IEA. It would be the largest fall in emissions on record.
Birol said that the decline — the result of a health crisis and economic shock — was “nothing to cheer.”
“If the aftermath of the 2008 financial crisis is anything to go by, we are likely to soon see a sharp rebound in emissions as economic conditions improve,” he said.
The wild card is how governments and consumers behave as the pandemic recedes. IEA analysis shows that governments directly and indirectly drive more than 70% of global energy investments.
If they choose to promote renewable energy as part of their recovery plans, that could accelerate a transition that was already underway. People may also be very reluctant to travel internationally as much as they did previously, and working from home could become more common, cutting commuter traffic.
German Chancellor Angela Merkel said this week that tackling climate change must be woven into the solution to the coronavirus pandemic.
“The design of economic stimulus packages presents a major opportunity for governments to link economic recovery efforts with clean energy transitions — and steer the energy system onto a more sustainable path,” the IEA said in its report.